UK ETS Extension to Shipping: What Shipping Companies Need to Prepare For

From 1 July 2026, the UK Emissions Trading Scheme will apply to (certain) maritime activities, bringing domestic maritime emissions into the UK carbon pricing framework. For shipping companies, shipowners, ISM managers, charterers and commercial operators, the practical consequence is straightforward: qualifying maritime emissions must be monitored, reported, verified and matched by the surrender of UK ETS allowances.

At first glance, this may look familiar. Many shipping companies already deal with the reporting schemes EU MRV, UK MRV, and IMO DCS, as well as with the regulatory carbon markets EU ETS and FuelEU Maritime. That familiarity can be misleading. The UK ETS extension to shipping is not a copy of EU ETS, and it is not merely a continuation of the previous UK MRV framework. It creates a new point of obligation, monitoring plan requirements, and surrender deadlines. In fact, the UK ETS Authority had already identified that the UK ETS maritime framework would deviate from the existing UK MRV regime in several respects, including but not limited to greenhouse gases covered.

Therefore UK ETS has more to it than just buying UK allowances. Similar to the extension of EU ETS, charter parties must be adjusted, reporting systems adapted, and new deadlines followed.

What does the UK ETS extension to shipping cover?

The Order applies the UK ETS to ships of 5,000 gross tonnage or more, subject to a list of exemptions, among others:

• Armed services vessels and law enforcement vessels

• Government surveillance or environmental protection vessels

• Navigation assistance vessels

• Fish-catching and fish-processing vessels

• Search-and-rescue vessels, medical emergency response vessels

• Scottish ferry services

• Offshore ships (until 31 December 2026)

The scope is built around the concept of a “maritime activity”. This includes a voyage that starts at the last berth of a port of call within UK jurisdiction and ends at the first berth of that port of call or another UK port of call, provided the ship does not arrive at a port of call outside UK jurisdiction. It also includes in-port activity, meaning movements within a UK port of call and the ship being at berth while loading, unloading or hotelling.

Therefore, the UK ETS captures domestic UK voyages and UK in-port activities, irrespective of whether the preceding or following voyage is domestic or international. It covers 100% for UK domestic voyages and in-port activities, and 50% for voyages between Great Britain and Northern Ireland.

Who is the responsible company under UK ETS maritime?

One of the most important definitions of the UK ETS extension to shipping is the one of the “maritime operator”. The default position is that the registered owner is responsible. However, where the ISM company is not the registered owner, the ISM company can become responsible if it has agreed in writing with the registered owner to take over the UK ETS obligations, evidence of that agreement has been provided to the satisfaction of the regulator, and no later notice has changed that responsibility.

Note that this results in similar problems as EU ETS or FuelEU Maritime as again the party with regulatory responsibility may not be the party making the commercial decisions that drive emissions.

The UK ETS Authority has not sought to mandate how costs are recovered between contracting parties. Instead, it has indicated that contracting parties are expected to agree entitlement to recover costs and the practicalities of recovery through contractual clauses on emissions trading. This makes charter party and ship management drafting central to implementation.

Monitoring plans are the first real compliance step

Each maritime operator must apply to the regulator for an emissions monitoring plan before the end of the 42-day period beginning with the day it first performs a maritime activity. The plan must set out how the applicant’s maritime emissions are to be monitored.

The emissions monitoring plan must contain:

• company details,

• contact details,

• the IMO unique company and registered owner identification number,

• procedures for monitoring voyages and in-port activities,

• procedures for fuel monitoring, data recording, uncertainty management, and emission factor updates,

• surrogate data for data gaps,

• information supporting emissions reduction claims,

• ship-specific information (ship name, IMO number, ship type, flag, gross tonnage, emission sources, fuel types, monitoring methods and measuring equipment).

Note that applications for approved monitoring plans must be made through the UK Manage Your Emissions Trading Scheme platform, and that verifiers are not involved in the approval of the emissions monitoring plan.

Reporting, verification and surrender deadlines

The annual emissions report must be prepared by the maritime operator, verified as satisfactory, and submitted to the regulator together with the verification report by 31 March in the year following the scheme year. The obligation to surrender allowances must be satisfied by 30 April 2028 for maritime emissions in the 2026 scheme year, and by 30 April in the following year for later scheme years.

The first reporting period is therefore unusual. Monitoring begins from 1 July 2026, but surrender of allowances for the 2026 maritime emissions is deferred until 30 April 2028. Therefore, the surrender obligation for 2026 and the normal surrender obligation for 2027 both fall in 2028.

Be aware, that the reporting and verification obligation arises before the surrender obligation. Data must be collected from the start of the regime, the annual emissions report for 2026 must still be verified and submitted by 31 March 2027, and the regulator’s records will ultimately depend on what has been reported and verified.

What must be reported?

The annual emissions report must contain information for each ship whose emissions are being reported, including:

• Ship name,

• IMO number,

• Flag state,

• Monitoring method and uncertainty level

• Total amount of each fuel consumed,

• Aggregated emissions from in-port activities,

• Aggregated emissions from voyages,

• Aggregated emissions from voyages between Great Britain and Northern Ireland,

• Total maritime emissions,

• Emissions reduction claims,

• Surrender deductions,

• Total emissions less any surrender deduction.

The UK ETS maritime regime covers carbon dioxide, methane and nitrous oxide. The Order calculates maritime emissions in tonnes of CO₂ equivalent, using global warming potentials of 28 for methane and 265 for nitrous oxide. Fuel consumption must be calculated separately for voyages and in-port activities.

The monitoring methods broadly reflect familiar maritime MRV techniques: bunker delivery notes and periodic stocktakes, bunker fuel tank monitoring, flow meters, and direct emissions measurement.

Eligible fuels and emissions reduction claims

The UK ETS extension to shipping also contains a specific mechanism for emissions reduction claims in respect of eligible fuels. A maritime operator may submit an emissions reduction claim for carbon dioxide emissions from a fuel if the fuel is eligible under a direction by the relevant national authority, was purchased during the relevant scheme year or not more than three months before it, was delivered to a point of no return before 31 March in the following year, has not been used to obtain an emissions reduction in another UK ETS scheme year or any emissions reduction or financial benefit in another scheme, and has not been sold to a third party. The emissions reduction claim must also be verified.

Note that alternative fuel claims under UK ETS should not be viewed only as a technical emissions factor adjustment. They require documentary evidence and protection against double counting. The prohibition on using the same fuel to obtain an emissions reduction or financial benefit in another scheme is particularly important for companies also operating under EU ETS, FuelEU Maritime or in voluntary carbon markets.

Enforcement risk is broader than buying allowances late

The Order extends the UK ETS enforcement framework to maritime operators. A maritime operator that fails to apply for an emissions monitoring plan, fails to comply with a monitoring plan condition, fails to monitor emissions or fails to submit a verified emissions report can be exposed to civil penalties. The penalties identified in the Order include a fixed amount of £20,000 and a daily penalty of £500 per day, subject to a maximum of £45,000 for the relevant failure categories. It is worthwhile to mention that regulators may publish the names of operators subject to emissions penalties.

The contractual problem: regulatory responsibility and commercial control may not align

The UK ETS extension to shipping will create familiar contractual tensions, but under a new regulatory structure. The responsible entity may be the registered owner or, where properly delegated, the ISM company. The economic driver of the emissions may be the charterer. The allowance cost may be commercially passed through under a charter party. The legal obligation to monitor, report and surrender, however, remains with the maritime operator recognised under the Order.

Parties should address who is responsible for providing voyage, port and fuel data; who bears the cost of UK allowances; who opens and maintains the maritime operator holding account; and what happens if responsibility changes during the scheme year. Inspiration can be drawn from the charter party clauses currently used under EU ETS but adaptations must be made.

The Order also creates a maritime operator holding account structure. Once the regulator issues an emissions monitoring plan, the regulator must instruct the registry administrator to open a maritime operator holding account in the name of that person. Surrender is then made by transferring allowances from the maritime operator holding account to the surrender account.

Practical conclusion

The UK ETS extension to shipping should be treated as a live compliance framework from 1 July 2026. The delayed first surrender deadline gives operators more time before allowances must be surrendered for 2026 emissions, but it does not delay the need to monitor emissions, apply for a monitoring plan, prepare annual reports, and most importantly update existing and draft new charter party agreements.